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Better-than-expected second quarter earnings, management’s focus on expanding the store base, driving comparable-store sales and improving margins as well as enhanced outlook are the primary rank drivers for this stock.

Net sales of $313 million exceeded the Zacks Consensus Estimate of $309 million and improved 20.6% from $259.5 million in the year-ago period. Comparable-store sales climbed 8%, attributable to a 5.3% jump in the number of transactions and a 2.7% rise in average transaction size. The Fresh Market opened 5 new outlets in the quarter, and plans to open 14 to 16 new stores in fiscal 2012.

Following its strong results, the company raised its outlook for the second time in fiscal 2012 and expects comparable-store sales to grow in the range of 5.5% and 6.5%, which is quite impressive in these difficult times.

Moreover, the company projects earnings of $1.33 to $1.38 per share, representing an increase of 25% to 30% over fiscal 2011 earnings per share of $1.07.

Earnings Estimate Revisions

The Zacks Consensus Estimate for fiscal 2012 increased 2.2% to $1.39 per share in the last 60 days. The current estimate implies a year-over-year growth of 29.8%. Moreover, for 2013, the Zacks Consensus Estimate increased 3% to $1.73 a share, reflecting an estimated year-over-year growth of about 24.9%.

Valuation

The Fresh Market currently trades at a forward P/E of 40.6x, reflecting a significant premium to the peer group average of 14.4x. Also, on a price-to-book basis, the shares are trading at 16.7x, a sizeable premium to the peer group average of 1.5x. However, the return on equity (ROE) for the stock looks lucrative with a 1-year ROE of 44.1% compared with 12.3% for its peer group. Given the company’s compelling fundamentals, the premium valuation is justified and well supported by its long-term estimated EPS growth rate of 20.8% versus 16.4% for the peer group.
About the Company

Founded in 1981 and headquartered in Greensboro, North Carolina, The Fresh Market is a specialty grocery retailer of perishable and non-perishable products such as meat, seafood, produce, deli, bakery, floral, traditional grocery and dairy products, as well as specialty foods that include coffee and candy, and beer and wine. As of July 29, 2012, the company operated in 24 states through 121 stores. The Fresh Market currently has a market cap of $2.71 billion.

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